Shares of Petco Health and Wellness (NASDAQ: WOOF) were headed to the doghouse today after the pet products retailer posted disappointing results in its third-quarter earnings report.
The company missed estimates on the top and bottom lines and cut its guidance for the full year as management cited a "challenging consumer environment."
As of 10 a.m. ET, the stock was down 21.9% on the news.
Image source: Getty Images.
Petco stock plays dead
Like much of the pet industry, Petco is still struggling with a slowdown in demand following the pandemic-era boom. Comparable sales in the quarter were flat, and revenue slipped 0.5% to $1.49 billion, which was just below the consensus at $1.51 billion.
Revenue from consumables was up 1.8% and services jumped 15%. However, that growth was offset by a decline in supplies and live pet sales.
Worse was the company's performance on the bottom line. Gross margin fell from 39.8% to 36.8%, reflecting higher costs, and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) declined from $120.2 million to $72.2 million. Adjusted earnings per share (EPS) came in at a loss of $0.05, down from a profit of $0.11 in the quarter a year ago, and below estimates at a profit of $0.02 per share.
The company also took a $1.2 billion noncash goodwill impairment charge associated with a private equity takeover in 2015 and the decline in the stock price.
CEO Ron Coughlin said, "Our third quarter results were below our expectations as we continue to navigate a challenging consumer environment and we are taking swift and decisive action to improve the performance of our business by broadening our appeal with customers and tightly managing costs and capital."
Guidance also disappoints
Petco maintained its full-year revenue guidance at $6.15 billion to $6.275 billion, representing an increase of 2.8% at the midpoint, but cut its adjusted EPS guidance from $0.24-$0.30 to just $0.08.
Management said it was introducing new value brands to meet consumer needs and it's aiming to cut annual costs of $150 million by 2025.
Those cost cuts could help enliven the stock, but it's easy to see why the stock is falling today as almost everything seems to be going wrong for Petco right now.
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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
